Answers to Common Buyers Questions

If you have any questions or would like more information about buying a home or property please Contact Us. If you would like more information about buying or selling a home or property please visit our Buyers Page or Sellers Page.

As a "rule of thumb", you can afford to buy a home equal in price to twice your gross annual income. More precisely, the price you can afford to pay for a home will depend on six factors:

Your income

The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender.

Your outstanding debts

Your credit history

The type of mortgage you select

Current interest rates

Question 2: How do I find out about the condition of the home I'm considering? Back to Top

First, it is strongly recommended that you hire a professional person to inspect the home. Many inspectors belong to the American Society of Home Inspectors (ASHI). They attend seminars and stay abreast of the latest developments. Secondly, some states require sellers to complete a disclosure form revealing everything known about their property. Home sellers are required to indicate any significant defects or malfunctions existing in the home's major systems. A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems.

The form also asks sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachment of easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property. Also, look for settling, sliding or soil problems, flooding or drainage problems. People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions, if the homeowners association has any authority over the subject property and ownership of common areas with others. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.

Some sellers must sell quickly; however, in general, a very low offer in a normal market might be rejected immediately. In a strong buyer's market, the below-market offer will usually either be accepted or generate a counteroffer. If few offers are being made, an outright rejection of offers becomes unlikely. In a strong seller's market, offers are often higher than full price. While it is true that offers at or above full price are more likely to be accepted by the seller, there are other considerations involved:

1. Is the offer contingent upon anything, such as the sale of the buyer's current house? If so, such an offer, even at full price, may not be as attractive as an offer without that condition.

2. Is the offer made on the house "as is," or does the buyer want the seller to make some repairs before the close of escrow or make a price concession instead?

3. Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.

4. Are there any requests for seller concessions, such as asking the seller to contribute towards points and/or closing costs? If so, the offer is not full price.

Different sellers price houses very differently. Some deliberately overprice, others ask for pretty close to what they hope to get and a few (maybe the cleverest) underprice their houses in the hope that potential buyers will compete and overbid. A seller's advertised price should be treated only as a rough estimate of what they would like to receive. If possible, try to learn about the seller's motivation. For example, a lower price with a speedy escrow may be more acceptable to someone who must move quickly due to a job transfer. People going through a divorce or are eager to move into another home are frequently more receptive to lower offers. Some buyers believe in making deliberate low-ball offers. While any offer can be presented to the seller, a low-ball offer often sours a prospective sale and discourages the seller from negotiating at all. In addition, unless the house is extremely overpriced, the offer probably will be rejected anyway. Before making an offer, also investigate how much comparable homes have sold for in the area so that you can determine whether the home is priced right.

Question 5: What steps should I take when looking for a home loan? Back to Top

It is strongly recommended that home buyers are prequalified or pre-approved for a loan as their first step in the process. By being prequalified, a buyer knows exactly how much house they can afford. They can make decisions that are more informed. This does not mean they will definitely get the loan because their credit reports, wages and bank statements still need to be verified before you can receive a commitment from the lender for the loan.

Almost all mortgage lenders prequalify people at no charge. Many of them will even do it on the internet. In order to be pre-approved, an application will be taken. For a fee, your credit report will be pulled, your employment and income will be verified, you're checking and savings accounts will also be verified. In other words, all the necessary documentation will be completed in order for you to obtain a loan. The only things remaining will be for you to find a home, obtain an appraisal on it to prove its value to the bank and perform whatever inspections you may want on the property. This process considerably shortens the period to closing.

Compare the mortgage charts published in most newspapers. Occasionally some lenders are willing to negotiate on both the loan rate and the number of points. This isn't typical among many of the established lenders who set their rates. Nevertheless, it never hurts to shop around, know the market and try to get the best deal. Always look at the combination of interest rate and points and get the best deal possible. This is reflected in what is called the APR or Actual Percentage Rate. The interest rate is much more open to negotiation on purchases that involve seller financing. Generally, these are based on market rates but some flexibility exists when negotiating such a deal.

Sales price increases in either type of housing are strongly tied to location, growth in the local housing market and the state of the overall economy. Some people feel that buying into a new-home community is a bit riskier than purchasing a house in an established neighborhood. Future appreciation in value in either case depends upon many of the same factors. Others believe that a new home is less risky because things won't "wear out" and need replacement. "Existing homes have been appreciating a little more than new homes but every once in a while they're at the same level and sometimes the new home prices go up a little quicker" according to the National Association of REALTORS® (NAR®).

Distressed properties or fixer-uppers can be found everywhere. These properties are poorly maintained and have a lower market value than other houses in the neighborhood. It is often recommended that buyers find the least desirable house in the best neighborhood. You must consider if the expenses needed to bring the value of that property to its full potential market value are within your budget. Most buyers should avoid run-down houses that need major structural repairs. Those properties should be left to the builder or tradesman normally engaged in the repair business.

HUD's Rehabilitation loan program, Section 203(K) is a program designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible. A 203(K) loan is frequently done as a combination loan. You purchase a "fixer-upper" property "as is" and rehabilitate it. Alternatively, you may refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan. Investors are required to put 15 percent down. Owner-occupants have a required down payment of 3 to 5 percent. A minimum of $5,000 must be spent on major improvements. Major repairs can be: a new heating system, roof, replacement windows, etc. You may then also finance additional repairs and improvements i.e.: new carpeting, kitchen cabinets, appliances, etc. You must of course "qualify" for the total amount you will be borrowing through this program. Two appraisals are required. These appraisals will be on the property "as repaired" not "as is." Plans and specifications for the proposed word must be submitted for architectural review and cost estimation. Once approved mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.

Remodeling a home improves its livability and enhances curb appeal, making it more salable to potential buyers. Some of the popular improvement projects are updated kitchens and baths, enlarged master bedroom suits, home-office additions and increased amenities in older homes. The resale market is often difficult because you are competing with new construction. You need to give your home every competitive advantage you can if you are selling an older home. Home offices are a relatively new remodeling trend. Adding one to a house often recoups 58 percent of the costs, according to a survey found in a report called "Cost vs. Value Report" in Remodeling Magazine.

The incidence of foreclosures is cyclical, based on national and regional economic trends. People can get a rough estimate of the number of foreclosures in a target area by dividing its population by 2,500, according to John T. Reed of Reed Publishing, Danville, Calif. Buying directly at a legal foreclosure sale can be risky and dangerous. The process has many disadvantages. There is no financing so purchases require cash. The title needs to be checked before the purchase or the buyer could buy a seriously deficient title. The property's condition is not well known and generally, an interior inspection of the property is not possible before the sale. Additionally Estate (probate) and foreclosure sales are exempt from some states' disclosure laws. The law protects the seller (usually an heir or financial institution) who has recently acquired the property through adverse circumstances and may have little or no direct information about it.

Question 12: When buying a home how much does my real estate REALTOR® need to know? Back to Top

Be sure to find out who your real estate REALTOR® is representing before you tell them too much. The degree of trust you have in a REALTOR® may depend upon their legal obligation of representation. An agency working with a buyer has three possible choices of representation. The REALTOR® can represent the buyer exclusively, called buyer agency, or represent the seller exclusively, called seller agency, or represent both the buyer and seller in a dual agency situation. Some states require REALTORS® to disclose all possible agency relationships before they enter into a residential real estate transaction. Here is a summary of the three basic types:

1. In a traditional relationship, real estate REALTORS® and brokers have a fiduciary relationship to the seller. Be aware that the seller pays the commission of both brokers, not just the one who lists and shows the property, but also to the sub-broker, who brings the ready, willing and able buyer to the table.

2. Dual agency exists if two REALTORS® working for the same broker represent the buyer and seller in the same transaction. A potential conflict of interest is created if the listing REALTOR® has advance knowledge of another buyer's offer. Therefore, the law states that a dual REALTOR® shall not disclose to the buyer that the seller will accept less than the list price, or disclose to the seller that the buyer will pay more than the offer price, without express written permission.

3. A buyer can hire an REALTOR® who will represent their interests exclusively. A buyer's REALTOR® usually requires a retainer which is refunded once the buyer purchases a house. The amount of the retainer differs from REALTOR® to REALTOR®. A buyer's REALTOR® can perform enhanced services for the buyer, such as preparing a market analysis on the home they are buying. All information provided to the buyer's REALTOR® shall remain confidential and will not be relayed to the Seller's REALTOR®.

If you have any questions or would like more information about buying a home or property please Contact Us. If you would like more information about buying or selling a home or property please visit our Buyers Page or Sellers Page.